The state of Utah has requested a temporary restraining order (TRO) with freeze of assets against Bailey Nolan Hall—owner of National Fitness Financial Systems—and a gym he owns, Performax.
National Fitness is the third-party billing company that multiple club owners allege failed to pay them the membership dues that the company collected for the club owners. In a February story, Club Industry spoke with several health club owners who said the Layton, Utah–based company intermittently paid them the membership dues before the payments stopped altogether. The lack of payments caused several of them to fall into personal debt, they said.
The court has yet to rule on the asset freeze request, which does not include a freeze of assets for National Fitness. The asset freeze request was filed in Second Judicial District Court Davis County on August 11 by the Utah Attorney General's Office Commercial Enforcement Division. The filing came after Hall filed for Chapter 13 bankruptcy on July 27. The Chapter 13 request was dismissed on Aug. 16 because Hall had not paid the filing fees.
Daniel Burton, director of communications and government records in the office of the Utah Attorney General, said he does not know when the court might issue a ruling on the request.
An asset freeze prevents defendants "from dissipating their assets from beyond the jurisdiction of a court so as to frustrate a potential judgment," according to Wikipedia.
Chapter 13 allows an individual or company to stay in business while restructuring debt.
As for what this means for club owners to whom National Fitness still owes money: "So far, National Fitness is not restrained from paying gym owners according to outstanding contracts," Burton said.
The TRO request from the Utah attorney general stems from the June 24 closure of Performax gym in Clearfield, Utah. The gym closed without notice after being evicted by its landlord. Performax owes approximately $429,922 in unpaid rent, according to the filing.
The order accuses Hall of violating the Utah Consumer Sales Practices Act and the Health Spa Services Protection Act. The filing states that "Performax and other entities controlled by Bailey Hall continue to bill Utah consumers for services, and to initiate collection efforts. Performax's website continues to offer gym memberships for sale without informing consumers of its closure; Performax has been evicted from the property and a creditor is in the process of repossessing its gym equipment. Despite the Division's attempt to obtain records from Defendants, they have not provided important documents to the Division."
The TRO is meant to protect members' legal right to restitution, the filing states. The attorney general had received 198 consumer complaints about Performax memberships as of the date of the filing. Many of them complain they are still being billed for membership dues, personal training and semi-annual membership fees. The attorney general's office notes in the filing that the gym may have between 1,500 and 3,000 members.
The filing said that Performax has made about $85,273 per month from billing that occurred after the gym closed.
On June 28, the AG served subpoenas on Performax, Hall and National Fitness Financial commanding that the entities hand over membership records no later than July 30, but none of the entities did so by that date. On July 27, the AG sent a cease and desist letter to Performax and Hall. As of the date of the TRO filing, the attorney general had not received a response from Hall. July 27 is also the date Hall filed for Chapter 13.
Due to the lack of response by the entities, the attorney general "is concerned and suspects that the Defendants are removing, concealing, or disposing of their assets to the detriment of consumers," the filing states.
Burton was not aware of any criminal charges or any other pending cases against Hall.
Utah Chapter 13 trustee Lon Jenkins, who had been assigned by the court as bankruptcy trustee in the Hall case, was out of town and did not respond to a request for further comments last week. Club Industry was unable to reach Hall for comment.
Several club owners contacted Club Industry after the initial story was published in February and after Club Industry posted a blog earlier this month asking for comments from club owners about National Fitness.
Of the health club owners who have contacted Club Industry about National Fitness, the amounts owed to the owners ranged from $9,000 to $500,000.
One health club owner said he has not received payments from National Fitness since December 2015, and when he tried to contact the company in early August, he found that the phone lines had been disconnected.
One owner said that her family's franchisees "have had to take severe losses in dues and payments, not to mention some of the clubs not being able to receive their data (memberships, billing, etc.) to bring to another billing company."